Microsoft’s Shane Kim on All Things XBox

The dapper Shane Kim sat casually in a chair behind closed doors at E3, his legs crossed; his button-down shirt, one button opened. Like all the Masters of the Universe at Microsoft, the vice president was dressed casually, but one step up from casual -- no polo shirt, no denim shirt, no logo shirt. He had that look in his eye, the one that says, "I'm ready to talk. You got the right questions?"

Frankly, I was a little put off about E3 because, as I wrote in a Slate story, no companies addressed this great recession during their dog and pony shows. Yet Kim calmed me down somewhat as we talked about why Microsoft didn't address the downturn, his long history at Microsoft and the exciting but still somewhat elusive Project Natal (which lets you very precisely control a game, movies and Xbox Live apps via a camera).

Crispy Gamer: One of the more general questions I had about the E3 press conferences is that no one mentioned the R-word. Or even, "Times are tough; we're going to get through this together." When you're thinking about writing a script for a briefing like you had, what makes you say, We're not going to touch that?

Shane Kim: Well, we decided we wanted to show, not tell. Historically, we have presented a lot of data. We just decided we've got much to show this year, almost too much to show. We wanted to get right to it. So it was pretty easy for us to say, We're not going to talk about the state of the industry.

Crispy Gamer: I saw an opening for a kind of "Times are tough; we're going to get through this together" moment when "Joy Ride" was presented. That's a free game and it could have worked at that moment.

Kim: The motivation there, though, is not the economic crisis. It would have been disingenuous to talk about it (with "Joy Ride") to be honest, at least in my mind. For us, it's more important that it's a new model.

Crispy Gamer: The game is free. But you buy add-on extras as microtransactions.

Kim: That's what we want people to do. It's a model that doesn't exist in the console space and is now possible because of Xbox Live. It's wrong to say, "This is free because times are tough." The truth of the matter is, if you want to get the most out of it, you're gonna pay.

Kim: E3 is going through a rebirth, and so is Microsoft with the Xbox 360. That's why it was important to us.

Crispy Gamer: Really, a rebirth?

Kim: You can go crazy with those parallels. But it was fun to be able to kick off the show with people who are that important.

Crispy Gamer: You went to Harvard for business school. Did Harvard help?

Kim: It has helped quite a bit. In Harvard, the Socratic method is an interesting way to learn. Sometimes it's difficult to pinpoint and I ask, what did I learn? But at the end of the day it's critical thinking. Microsoft is its own education, too. Did I think I would end up in the videogame industry? The answer very clearly is, no. But I can't think of a better place to have spent my career.

Crispy Gamer: You began at Microsoft in 1989 as a summer intern. And sometime in 1993, you moved into the consumer division and in 1995 you moved to work on games more specifically.

Kim: That was a great transition for me. I decided I didn't want to work in enterprise software for the rest of my life. When I made the decision to move to the consumer division, there was no consumer back then. There really wasn't. We were just starting to stamp things on CDs.

Crispy Gamer: There was no "Myst," no Windows 95.

Kim: Exactly. There were no CD drives in every computer. Now, interestingly enough, they're going away. But back then, we were putting everything we could on a CD.

Crispy Gamer: "Myst" would become so big that the game literally sold those old PCs.

Kim: There you go. And there was no retail channel either, literally, to speak of. So that was a challenge.

Crispy Gamer: So how did you build that business? Ed Fries was there, a huge force, and there was "Age of Empires."

Kim: Ed and I joined about the same time. I worked for Ed for eight years. Ed led the growth of Microsoft Game Studios and we started with "Microsoft Flight Simulator" and "Microsoft Golf." "Age of Empires" was a driver of sales for us. I'd like to take a little credit for "Zoo Tycoon," too.

Crispy Gamer: But what was the biggest challenge for Microsoft with PC games?

Kim: It was trying to tap into the various tastes. As gaming broadened on the PC, games began to be more interesting beyond first-person shooters and flight and sports simulators. That's when you started to see new categories. Real-time strategy games really emerged and blew up big. "Myst" and the adventure genre ramped up hugely and then it slowed quickly, right? Now, it's interesting to see that the bulk of PC gaming has moved into online.

Crispy Gamer: Still, it wasn't all easy back then. What was the hardest product to get out the door and get people's heads around?

Kim: "Zoo Tycoon" didn't just take off. Back then, you had "RollerCoaster Tycoon," which had massive success. But when you have a massive game like "Age of Empires" -- that becomes more and more challenging as you go on. That's because you've got to continually figure out how to make it better and better and better. But we did it with "Age of Empires II." I still have fond memories of playing "Age of Empires II" in the hallways at Microsoft after hours. That's very memorable.

Crispy Gamer: But you believe it was the Xbox that put Microsoft games on the map for good.

Kim: The truth of the matter is that the Xbox was responsible for the incredible growth of Microsoft Game Studios.

Crispy Gamer: Before it was released, did you know "Halo" was going to be the killer app for the Xbox?

Kim: I wasn't directly involved with Bungie. But thank God we did that. Because without "Halo," there's no Xbox.

Crispy Gamer: That's a bold statement.

Kim: It's the flagship franchise. It's what launched Xbox. And "Halo 2" really drove Xbox Live. We were lucky and found Bungie, who was developing this exclusively for the Mac. It was lucky for us that we recognized the potential there and ultimately bought the company. You may or may not remember that at E3 of 2001, we showed Halo here on the floor and it didn't look so good. That's because the hardware wasn't at that point where the developers could really work their magic yet.

Crispy Gamer: In retrospect, should you have waited?

Kim: You can argue whether or not we should have shown it, but we did. Thank God the hardware and software came together, and the rest is history.

Crispy Gamer: You were trying a variety of things when Xbox launched, like "Shrek," which was not so hot.

Kim: Right. We were so glad "Halo" took off. The studio's job is to push the envelope. You can't really rely on third-party software, certainly not anymore.

Crispy Gamer: The 360 has arguably been the most innovative box of this generation --

Kim: People usually don't give us that much credit. So, thank you.

Crispy Gamer: You have everything from Xbox Live to Netflix and now Natal. But then you have this phenomenon with the Wii, which took so much market share. How do you regain some of that market share?

Kim: You don't focus on that.

Crispy Gamer: You don't?

Kim: We don't focus on that. Project Natal is not about Nintendo, as much as everyone will want to draw comparisons between Natal and the Wiimote. Project Natal goes way beyond what the Wiimote does for the Wii.

Crispy Gamer: How so?

Kim: We're talking about full-body gestures, full skeletal tracking, the ability to move around in space with your entire body, facial recognition, voice recognition. None of this is possible with the other boxes. Sony has not come out with its motion controller, and people will talk about it as derivative. We're not even in that conversation.

Crispy Gamer: So if you're not concerned about taking their market share --

Kim: We're more concerned about this question: How do we unlock the potential of 60 percent of the households who have a videogame console? That's the real opportunity. We know we have a tremendous entertainment experience to offer with the Xbox 360 and Xbox Live. But the controller is a barrier to people. That's what Natal will change.

Crispy Gamer: So how did Natal come about?

Kim: We've been working on it for a long time. The reason I say a long time is because being a part of Microsoft is a real commitment for managers. We get to take advantage of technology in other parts of the company. So, for example, Bill was a big fan of voice recognition and we get to use that technology. I'm hoping that the work we're doing to integrate voice, gestures, etc. will be taken up by other parts of the company, who might say, We want to take advantage of that. Because information workers are people, too.

Crispy Gamer: I remember, back in the '90s, getting a demo of a mouse and someone telling me that the mouse would be over soon, because eye tracking would become ubiquitous and Microsoft would lead the way. That never happened. But is that the kind of thing that evolved into Project Natal?

Kim: I don't know about that specifically. But, trust me, there were a lot of people inside the company that were trying to say, We gotta do something like the Wiimote. Thankfully, we didn't go down that path.

Crispy Gamer: Well, that way lies madness, in a sense, because the Wiimote is kind of old technology.

Kim: You called it that. I did not.

Crispy Gamer: If you look at "Game Over," the old David Sheff book about Nintendo, one of the things the Nintendo developers said back then -- and I'm paraphrasing -- is that Nintendo tries to make the best use of old technology.

Kim: Instead, this is a whole new ballgame.

Crispy Gamer: How did Steven Spielberg get involved with this?

Kim: Steven and Don (Mattrick) have been friends for a long time, a decade or more. Their association goes back to Electronic Arts. As Natal was becoming more and more real and ready to take out on the road, we took the opportunity to share it with a few folks, including Steven. To have his endorsement means everything -- because here's one of the master storytellers in history saying, This is the next frontier.

Crispy Gamer: Will he be working with you on product?

Kim: Steven has a relationship with Electronic Arts. And that's not something for us to interfere with. But it is nice to get his endorsement. He recognizes the potential and sees the magic. What we showed at the E3 briefing was great: "Ricochet" and "Milo." But those are just the initial apps. We've barely scratched the surface. The more we can put these in the hands of developers -- and we already shipped dev kits to them -- the more we're going to see things we haven't even imagined yet. That's where a guy like Steven, who's a visionary, can really perceive the future.

Crispy Gamer: You mean for this to be core gaming and not just casual gaming?

Kim: I envision this to be applied across gaming, hardcore and casual, across entertainment, across social networking, across everything you can do in Xbox 360 and Xbox Live.

Crispy Gamer: When will get to use Project Natal? How far down the line is that?

Kim: Well, it can't come soon enough. But I can promise you we won't ship it until it's ready. By that I mean, not only is the hardware and the software ready. But we have to have great experiences.

Crispy Gamer: It sounds all-encompassing, business-wise.

Kim: This is like the launch of a console. So, we didn't launch the Xbox 360 without trying to have a great launch portfolio of games that would help people to buy the system. And this is great because we don't have to force you to buy a new console. Thirty, 40, 50 million people are going to have Xbox 360s and they won't have to buy new consoles to enjoy Project Natal. We have a huge advantage because there's a built-in, addressable install base. But we have to have great experiences.

Crispy Gamer: Are you working on the next-generation system at this point as well?

Kim: We have a lot of R&D working on a lot of areas. What I'll say is that we talked about Xbox 360 as having a 10-year life cycle. But we obviously knew about Natal coming along. We didn't want to be on the same treadmill of, hey, there'll be a new console every five years. Frankly, that's the old playbook. I'm convinced that the next generation will be defined by software services, not by hardware.

So the jump from 2-D to 3-D made sense. The jump from SD to HD made sense. The jump from HD to the glory that we can now provide on the Xbox 360 made sense. Those were good reasons to release the hardware. But Milo is pretty lifelike. Gears of War is still really, really beautiful. So we would really prefer to add more things to Xbox Live. We're a software and services company. We know how to refresh the experience without having to make people buy a new $300 to $400 piece of hardware. That has important ramifications for the industry as a whole, because we're not starting over from an install base.

Crispy Gamer: Will the camera for Project Natal be very expensive?

Kim: It's a very sophisticated piece of hardware.

Crispy Gamer: It's not going to cost going to cost as much as a console, right?

Kim: We're not talking about pricing yet. But what I've been telling people is that we, of all people, understand the value of cost consciousness. We are benefiting by having the lowest price console on the market today with the Xbox 360 Arcade. While the industry's overall revenue declined in the last two months, we're up 30 percent in 2009, year over year from a hardware unit standpoint. That's pretty impressive given the economic climate. So we understand the value of having the right price. We will absolutely be conscious over the pricing of Project Natal.

Crispy Gamer: And if you have the right experiences, people will pay?

Kim: I've been around the industry long enough that I've experienced the launch of "Halo," "Halo 2" and "Halo 3," the Xbox 360. This feels as big, if not bigger, than any of those things. You start off from that standpoint. Then, you know that there's consumer excitement and anticipation. You think, boy, we're lucky because intrinsically, we've built up the idea of value in people's minds.

Crispy Gamer: Do you feel you have the killer app right now for Project Natal, whether you've shown it to us or not?

Kim: Yes.

Crispy Gamer: Do think that's "Milo" or something else?

Kim: I'll just say, yes, we have it. We do have a lot more in development that we didn't yet share.

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